Scenario 5.1
The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2P x . Assume that P = $8, I = 200, and P x = $10.
-Which of the following statements correctly describe the elasticities of demand for gasoline and automobiles?
A)The income elasticity of demand for gasoline and automobiles is negative.
B)The price elasticity of demand for gasoline is elastic and the cross-price elasticity between gasoline and SUVs is positive.
C)The price elasticity of demand for gasoline is inelastic and the cross-price elasticity between gasoline and SUVs is negative.
D)The price elasticity of demand for gasoline is inelastic and the income elasticity between gasoline and SUVs is positive.
E)The price elasticity of demand for gasoline is elastic and the income elasticity between gasoline and SUVs is negative.

Question

Quizplus · Accepted Answer

The price elasticity of demand for gasoline is inelastic because the demand equation shows a small change in quantity demanded with a change in price. The cross-price elasticity between gasoline and SUVs is negative, indicating that they are complementary goods.

Scenario 5.1 The Demand for Noodles Is Given by the Following Equation